With the new mortgage rules and home prices rising faster than ever in Kitchener-Waterloo and beyond, first-time home buyers are feeling the pinch. With the risk of being priced out of the market, there is the additional challenge of not only carrying a larger mortgage but also coming up with the minimum 5% deposit, or ideally 20% deposit that would exclude the need for CMHC mortgage insurance fees in most cases.
But recent studies show that rising prices won’t stop buyers who are determined to start building equity as soon as they are able. In fact, half of Canadians aged 18 to 34 own homes and rent out a room or basement to help cover housing costs.
While it may be an inconvenient to share your home, getting closer to being mortgage free, and having the extra income generation may be worth the temporary sacrifice. According to a study based on 2000 participants, 12 per cent of Canadian homeowners currently rent or plan to rent out part of their home, with that amount rising to 20 per cent for 18- to 34-year-old homeowners.
Kitchener-Waterloo was characterized by strong real estate market throughout 2016 with house prices increasing by an average of 10% over home prices in 2015. A series of broken sales records combined with low inventory has had a rippling effect on everyone.
Move-up buyers in particular have enjoyed the maximization of their equity. Owners who have sold their homes in 2016 are benefiting from the substantial activity at the lower end of the market, which has allowed them to move into larger, new homes, often in the luxury $1 million+ range. While there has been some multiple-offer activity in the luxury home market, competition is remarkably less than that found below $500,000.
However, there are only a few weeks left in 2016 for buyers of luxury homes to enjoy the original land transfer rates. New mortgage policy has updated or “modernized” land transfer rates to reflect the prices of luxury homes, with purchases of homes over $2 million seeing a .5% rate increase to help accommodate the doubling of the First-Time Home Buyer land transfer rebate announced in November 2016.
“Modernized” Ontario Land Transfer Tax Rates
Home Purchase Price Tax Rate
Up to $55,000 0.5%
$55,000 to $250,000 1.0%
$250,000 to $400,000 1.5%
$400,000 to $2-million 2.0%
$2-million and over 2.5%
Yesterday afternoon Finance Minister Charles Sousa announced an increase to the land transfer tax (LTT) rebate for first-time buyers. The rebate is being doubled from $2,000 to $4,000. The announcement came as part of Ontario’s Fall Economic Statement and is specifically aimed to help first-time buyers enter the housing market. Buyers can start claiming the rebate effective January 1, 2017.
Although home prices continue to rise, every little bit helps to allow buyers a chance to get into the market and begin to build equity and wealth. With the new change, first-time home buyers who are permanent residents will not pay land transfer tax on the first $368,000. In many cases in Kitchener-Waterloo and area, the rebate will translate to these buyers not paying land transfer tax on the purchase of their first home at all.